Steering into Danger

While plenty of class action lawsuits are still swirling regarding real estate practices, I believe we are only at the beginning of our legal troubles in the real estate industry. The final settlements from the Sitzer-Burnett lawsuit are likely to be court-approved at the end of November. We aren’t hearing any rumblings or significant issues that might erupt, but you never know.

I am more concerned about other procedural and transactional elements that will cause agents and brokers to turn on each other. It all comes down to whose responsibility it is to monitor behavior and adherence to the settlement guidelines. It will likely be up to the industry to monitor itself, or if it affects the consumer, they will be forced to do it, or the attorneys will. We definitely don’t want that.

While mortgage, escrow, and title services are all integral parts of the transaction, it isn’t their responsibility to ensure that the buyer’s agency agreement is signed. But they do need to know who is getting paid what amount and by whom. National Association of Realtors (NAR) says it is the MLS’s responsibility, but the Multiple Listing Service (MLS) says it lacks the manpower to monitor all required documents and processes. I am already hearing of confusion and delays at closing to sort it all out. But let’s dive into the two biggest potential complaint and litigation landmines in the future…Clear Cooperation and Steering.

Clear Cooperation. Nothing clear about it.

Clear Cooperation Policy is already getting a lot of industry media attention, with the industry divided on the benefits or the drawbacks to the brokerage and the consumer. Clear Cooperation is a policy set forth by NAR that requires a listing to be put in the MLS system within one business day of marketing the property to the public. The policy governs the public marketing of listings and ensures cooperation with other MLS participants. While brokers or agents can still take ‘office exclusive’ listings, they must submit the signed form to the MLS or use the online exclusion feature.

Clear Cooperation only dates back to 2020. There are a lot of brokerages and agents who claim that the practice violates the choices and privacy of their clients. But what it does if it is not adhered to is deprive the client of the benefit of placing their listing in an open market competition. Whatever you call them, ‘off-market,’ ‘whisper listing,’ ‘coming soon,’ ‘office exclusive,’ or ‘pocket listing, ’ it really benefits the brokerage the most because they float the listing internally within their company and try to sell it in-house so they can do what is known as ‘double ending’ the commission meaning the company gets both sides of the commission on one transaction without sharing with an external company.

Certain brokers are bucking the policy as a competitive advantage. They tout exclusivity and the possibility of lower commissions to the seller if the property is sold in-house. They also say it allows clients to test the market without formally listing their property. Those same brokers tell their buyers they have access to inventory not available to the public, offering less competition to secure a property. They also say they might get a better deal if the seller is motivated to sell quickly off-market. I’m not buying any of that, but that’s just my opinion.

Risk Scenario #1:

If a client opts their listing out of the MLS and sells it off-market for a specific price and later that seller sees a similar property to theirs sell for more in an open market, we could see litigation. The agents promoting this off-market practice tout privacy issues for their clients as the main reason to keep it off-market. I guess it begs the question, if you aren’t rich and famous, why wouldn’t you want to get as many eyeballs of potential buyers on your property to determine what the market will pay?

Risk Scenario #2:

In theory, the lack of Clear Cooperation could also lead to discriminatory practices since it is only marketed to the clientele of that brokerage instead of everyone in the market. There is a massive lack of transparency. It may also create dual agency conflicts and possibly a violation of anti-discrimination and anti-trust laws by leading to unfair advantages for certain buyers and agents, leading to litigation.

Brokers and agents who want to eliminate Clear Cooperation argue that the policy was only beneficial in promoting properties on the MLS to display the commission amount. Now that the commission is no longer on the MLS, they believe listings should not be required to be shown publicly.

When to show, when not to show. Steer clear.

My biggest concern for possible future litigation or violations is around ‘steering.’ The NAR settlement agreement states, “NAR reaffirms its commitment to requiring that MLS participants must not limit the listings their clients see because of broker compensation.” Traditionally, steering refers to an agent who steers potential buyers to or away from a particular property based on various factors, such as discriminatory measures based on the buyer’s racial, religious, or other demographics. It is a violation of the Fair Housing Act. It also includes eliminating properties shown based on compensation offered to the agent.

There are already many stories of agents calling listing agents to ask about compensation for the buyer’s agent. At this point, that is actually fine. The problem occurs when the agent calls and learns that no specific compensation amount is offered up and then elects not to show the property. Whether intended or not, it may appear that the property is not being shown because no compensation is offered. Even if the client directs the agent not to show it, that violates the NAR Settlement and the Code of Ethics because the agent should not pass over a property based on compensation offered. This leads us back to why we are in this mess…antitrust. That puts the seller and buyer at a competitive disadvantage.

Agents and brokers will begin to turn on each other and go after those buyer’s agents who steer customers away from their listings with low or no compensation. We will likely see the industry turning on itself and reporting these incidents or filing suit, as in the example below.

Real Scenario #1:

Here is a snippet from an article in Real Estate News about a recent complaint: “Homie — a flat-fee brokerage based in Utah — filed a suit alleging anticompetitive behavior and steering. Homie filed a complaint on Aug. 22, 2024, in U.S. District Court in Utah, alleging that the National Association of Realtors and its members ‘control competition in the residential real estate brokerage industry by controlling the nation's MLSs.’ The complaint also said the defendants, which include brokerage firms and a Utah MLS, conspired to prevent disruptive innovation, arguing that home sellers in the class action commissions lawsuits were not the only victims of anticompetitive practices. In its complaint, Homie provides details of emails and texts from NAR member brokers telling the company they would not show Homie listings to their clients because the commission fee was too low. The filing listed examples of alleged steering, including this remark from an MLS comment field: ‘If you up the commission, I will bring my buyers. If not, I will not. It's a disservice to your client. Please educate them. Please let them know that. I truly have a buyer that would possibly buy this house. I won't show it until the commission is raised.’ The complaint also said local NAR members used Facebook groups to organize boycotts of Homie's listings with low buyer-broker commissions, sometimes using the hashtag #boycottHOMIE.” And there you have it—blatant antitrust behavior and a violation of the NAR Settlement and Code of Ethics. It’s sad that some unethical agents ruin it for everyone.

Risk Scenario #2:

If an agent passes over a property because of a lack of compensation offered and the client buys a different property, then, after closing, the client realizes they were not shown a more suitable property (even if they directed the agent only to show those with compensation), they might take exception to the fact that there was a better property for them that met their needs. An additional possibility is that another very similar property to the one they purchased sold at a much better price than they paid.

Just do the right thing.

So, with all that being said, corporations, transferees, and relocation management companies must not ask agents and brokers to behave in a way that might negatively impact them, even if that is not their intent. Working with the most professional brokerages and Relocation Directors will ensure your transferees receive the duty of care they deserve and keep everyone safe from litigation or violations.

BTW, I’m no attorney and these are my opinions. For more information on the NAR Settlement, Clear Cooperation, and Steering, go to www.NAR.Realtor/the-facts